While taking a home loan, borrowers check the interest rate, tenure, applicable charges, etc., to ensure that the borrowing cost remains as minimal as possible. Still, after all these checks, they can find some other lender offering home loans at a lower rate. It may happen, especially if borrowers miss that particular lender during their research or if that new lender reduces its applicable rate of interest later. Whatsoever, they can choose to go with the home loan balance transfer to take their outstanding debt to that new lender.
What is a Home Loan Balance Transfer?
A home loan balance transfer is a credit facility that lets borrowers migrate their loan account to another lending institution from the present lender. Generally, borrowers go with this decision when they see that the new financer offers significantly lower interest rates on its home loans.
When you take this balance transfer facility, the new financial institution initiates a loan under your name and pays off all your dues with the existing lender. Following this, you will be financially liable towards your new financial institution and repay the existing debt according to the terms set by it.
Advantages of Home Loan Balance Transfer
Following are the benefits you will get by choosing the home loan balance transfer facility:
- Reduced EMI: Due to the reduction in the home loan balance transfer interest rate, you can significantly lower your applicable EMIs. This will help you repay your remaining debt more conveniently, thereby reducing financial challenges.
- Attractive Terms: The terms and conditions of a home loan are different from one lender to another. Home loan balance transfer gives an opportunity to switch your loan account to a lending institution that offers more attractive terms on their financial products. This way, they can initiate repayment on a better deal.
- Top-Up Loan: Besides the direct benefits like lower home loan interest rates, reduced EMIs, and attractive terms, you can also leverage a top-up credit facility. This allows you to get additional credit on your existing home loan. As a result, you will not have to take a new loan in case of financial shortage to complete the construction of your house. The interest rate on the top-up will remain the same as your home loan interest rate.
- Pre-Approved Offers: Pre-approved loan offers are special credit offers tailored for the existing customers of lending institutions. As a result, you can get loans with reduced hassles. If you migrate your outstanding home loan balance to a lender that provides pre-approved offers, you can also get credit facilities in the future quite easily. Nevertheless, the primary intent for your home loan balance transfer should ideally be to reduce your outgoing interest, not to get pre-approved offers.
Things to Consider before Opting for a Home Loan Balance Transfer
You need to carefully consider the following aspects before going with your decision for a home loan balance transfer:
- Outstanding Loan Balance
In this regard, you should bear in mind that a home loan balance transfer will help you save your borrowing cost under some circumstances, especially when you have a substantial outstanding loan amount. If the outstanding loan amount is less, you will not be able to save much on your interest component.
- Cost-Benefit Analysis
You will have to pay processing fees and other charges. This is why you should ideally make a cost-benefit assessment before going with this facility. You need to calculate how much you will be able to save after including processing fees and other charges. If the amount is positive and satisfactory, you can go with your decision for a home loan balance transfer.
- Eligibility Criteria
Like any other credit facility, a home loan balance transfer also comes with certain eligibility standards. You need to meet all the eligibility parameters to qualify for this facility. Otherwise, your chosen new lending institution can reject your application.
What Happens after Applying for Home Loan Balance Transfer?
When you intimate your existing lender to inform them that you want to migrate to another lender to secure an attractive interest rate and other terms, it can become ready for negotiations. That lending institution may offer you a reduced interest rate, after duly considering your repayment record and credit score.
If this does not happen, you can stick to your decision for a home loan balance transfer and apply for the same to your new lender. After verification and consequent approval of your request, the new lending institution will pay off all your dues to your previous lender.
Eligibility Criteria for Home Loan Balance Transfer
To leverage the benefit of this balance transfer, you need to meet the following eligibility parameters:
- Age: Between 23 and 65 years old
- Citizenship: Indian
- Work Experience: Minimum 3 years of professional experience from a reputed organisation
- Complete Tenure: Applicants must have paid 12 instalments of the loan being transferred
Besides this, they also need to fulfil the standards of minimum income and minimum property value, which vary according to location.
Note: These are only indicative home loan balance transfer eligibility criteria and may vary across financial institutions.
Home loan balance transfer is a credit facility that almost all lending institutions offer to draw existing customers from other lenders. By choosing this facility, you can significantly reduce your EMI amount and the overall burden of a home loan. However, before choosing this facility, you should ideally complete a cost-benefit analysis to understand how much you can save by going with the decision of balance transfer.